Budgeting Basics
A plan for managing income and expenses.
What is a budget?
Savings set aside for unexpected expenses.
What is an emergency fund?
essentials vs. non-essentials.
What is the difference between needs and wants?
A number representing a person's creditworthiness.
What is a credit score?
Setting goals and creating a strategy to manage finances effectively.
What is financial planning?
To stay within budget and avoid debt.
Why is it important to track your spending?
To take advantage of interest over time.
Why is it beneficial to start saving early?
To find the best value and save money.
Why is comparison shopping important?
To avoid interest charges and maintain a good credit score
Why is it important to pay your credit card balance in full each month?
It provides direction and motivation for managing money.
Why is setting financial goals important?
Regular, unchanging expenses; e.g., rent or car payment.
What are fixed expenses?
Daily transactions vs. Storing money and earning interest.
What is the difference between a checking and a savings account?
Making unplanned purchases without considering the consequences.
What is impulse buying?
It prolongs debt repayment and increases interest paid.
What is the consequence of making only minimum payments on credit cards?
To protect against financial loss from unexpected events.
What is the purpose of insurance?
Expenses that can change; e.g., groceries or entertainment.
What are variable expenses?
Interest calculated on the initial principal and also on the accumulated interest.
What is compound interest?
It limits spending to available funds and avoids debt.
How can using cash instead of credit help control spending?
Borrowed money that must be repaid with interest.
What is a loan?
Spreading investments to reduce risk.
What is diversification in investing?
At least 20% of your income.
What percentage of your income is recommended to be allocated to savings?
Automate transfers to savings or reduce unnecessary expenses.
What is one strategy to increase your savings?
A detailed approach to managing expenses and income
What is a spending plan?
It represents the yearly cost of borrowing.
What is Annual Percentage Rate (APR), and why is it important?
To adjust for life changes and stay on track with goals.
Why is it important to review your financial plan regularly?